Pete is up to his old tricks. I’ll spare you the recitation of Pete’s frivolities. You’ll not be surprised that, although Judge Buch repeats Pete’s history, Judge Buch avoids “somber reasoning and copious citation of precedent.” He merely ignores Pete’s well-worn rhetoric.

Of interest to my readers is that Judge Buch exonerates Pete from the Section 6663(a) 75% fraud chops.

But Pete isn’t home-free, because Section 6651(f).

“As relevant here, imposition of a section 6663(a) penalty requires that the taxpayer file a valid return, and a section 6651(f) addition to tax is applicable ‘only if * * * [the taxpayer] fails to file a timely return, and then only if the delinquency is fraudulent.’ Although the Hendricksons, and Mr. Hendrickson separately, submitted documents purporting to be returns for 2002, 2003, and 2004, we must determine whether the returns are valid for the purpose of imposing a section 6663(a) penalty or a section 6651(f) addition to tax.” 2019 T. C. Memo. 10, at p. 22 (Footnote omitted).

I expect you won’t be overly surprised to discover that neither nor both the Hendricksons filed valid returns. They did put in one valid item of income, so their returns weren’t the usual all-zeros nonsense. This avails Pete not.

“It is generally accepted that a taxpayer’s return reporting zeros for all income lines is not a valid return. Additionally, even if the taxpayer provides some income information, the return is not valid as ‘there must also be an honest and reasonable intent to supply the information required by the tax code . . . . In our self-reporting tax system the government should not be forced to accept as a return a document which plainly is not intended to give the required information.’ Finally the Commissioner’s processing of an invalid return does not make it valid. As the Court has similarly held regarding the open limitations period with which to assess liabilities under section 6501(c), the Commissioner’s processing of a fraudulent return does not in and of itself start the limitations period.” 2019 T. C. Memo. 10, at pp. 22-23. (Footnotes containing “copious citation of precedent” omitted).

Pete has been reading Tax Court opinions, if not my blog, so he’s up on Section 6751(b) Boss Hossery. IRS got the trial record reopened to put in Form 11661, Fraud Development Recommendation – Examination, and a civil fraud lead sheet. “Form 11661 lists Mr. Hendrickson’s name, includes the revenue agent’s notes asserting fraud penalties for [years at issue], is dated …and is signed by the revenue agent’s immediate supervisor. The civil fraud lead sheet lists both Mr. and Mrs. Hendrickson, asserts fraud penalties for [years at issue], is undated, and includes a detailed description of the Hendricksons’ frivolous filing techniques.” 2019 T.C. Memo. 10, at pp. 12-13.

Pete claims this falls short of the Congressionally-mandated second look. Judge Buch says Section 6651(f) doesn’t even get one look, as Section 6751(b)(2)(A) leaves the whole of Section 6651 out of the Boss Hoss equation.

Maybe Congress should take a second look at the Section 6651(f) fraudulent non-filing carve-out, even if IRS need not. I’m not suggesting Pete is an injured innocent, but someone else might be.

An author, teacher, advocate and trusted advisor, Lew Taishoff is a New York City-based attorney with 52 years of experience in corporate and individual tax and real estate matters. He is an Enrolled Agent, examined and admitted to practice before the Internal Revenue Service, and admitted to practice before the ... Continue reading →